The great euro debate is only just beginning

When the proposal for one central bank setting interest rates for the whole Eurozone was first mooted, economists were quick to point out one specific danger. The different economies would grow at different speeds, and thus the interest rate that suited one could easily be disastrous for another.

They were, of course, immediately put down by other economists who said monetary adjustment was only one way to regulate an economy, and that any adverse effects could be countered by tighter or looser fiscal policy. This was before the head of steam built up to harmonise tax policy across the Eurozone, which would curtail that flexibility.

Throughout this debate, no one thought to cast Germany in the role of the sufferer. It was assumed Europe's biggest economy would set the pace, and the rest of the Continent would somehow have to keep up. Thus the whole story of the euro has been one of convergence towards German norms on interest rates, inflation, levels of government debt and the role of the central bank.

But, in the way economics has of confounding the most firmly held theories, convergence seems to have come to an abrupt end just as it should have been set in stone. The hard part was supposed to be bringing the economies into line. Rather easier ought to have been keeping the convoy together thereafter.

What seems to be happening now is that long-running problems caused by reunifying Germany at the start of this decade - at the wrong exchange rate, it must be said - are now dragging down the whole economy. It has taken much longer than expected, but is now only too apparent.

The Bismarck is not actually sinking, but the German battleship is finding it hard to keep up. That country may be in recession. The French economy, in contrast, seems to be moving ahead quite strongly. This means we need fundamentally to reconsider how we look at the Eurozone. Convergence appears to be yesterday's story, and how to accommodate the stresses between the two largest economies may soon preoccupy the markets. One suspects, as a sideshow, that those betting that British convergence in currency and interest rates will go as smoothly as those of Italy or Spain may yet come unstuck.

This all makes the launch today of yet another euro pressure group all the more timely. Calling itself New Europe, it consists of those who have always been pro-European, but who feel member-ship of the euro would be a mistake.

What makes it out of the ordinary is that it is cross-party and heavyweight, or possibly top heavy, with Lord Owen, the founder of the now-defunct SDP, former Labour Chancellor Lord Healey, and Lord Prior, one-time Conservative Cabinet Minister and chairman of GEC, as its leading lights. Other key supporters include Martin Taylor, until recently of Barclays, Lord Sainsbury of Candover (not to be confused with cousin David, the Labour minister) and Lord Ash-burton (perhaps better known as John Baring) who did three years as chairman of BP from 1992 to 1995, and much else besides.

It is a bit early to say just what this body will focus on but it does seem to have two early themes. One is convergence, and the danger of locking economies irrevocably together when they are still moving at different speeds, not to say in different directions.

The second is the Martin Taylor thesis that the political side of Europe needs to be sorted out too, and that such close economic ties should not be forged without parallel development of the political and democratic structures.

If you thought the euro debate was going to end with its launch two months ago, I'm afraid you were wrong. It is only warming up.